EP Wealth's Jon Bacon, CFP^®, shares practical steps for preparing your family for an inheritance, from starting the conversation to choosing the right estate planning tools. 

Preparing Your Family for Their Inheritance

Family inheritance is one of those taboo dinner table topics, like religion and politics, that people tend to avoid in polite company. As a Certified Financial Planner™, however, one of my jobs is to help families break the ice and have these important conversations. The topic of inheritance might seem challenging or awkward at first, but with the right approach it can open the door to honest and productive communication with your loved ones.

The first step is starting the conversation and framing a discussion about money in a positive way. Some of the other steps I walk through in this blog include:

• Framing inheritance conversations around goals and values rather than numbers
• Managing the family dynamics that can surface when significant wealth is involved
• Balancing what you want to leave behind with what you need for your own retirement
• Helping heirs develop the financial skills to manage an inheritance responsibly
• Using trusts, gifting strategies, and other tools that may help carry out your wishes

Step 1: Know How to Talk Money with Your Family

I always tell my clients: money is a tool. It's not the ultimate goal in and of itself. Whether we're talking about your life savings or a future inheritance coming down the pipeline, it's helpful to look at money as a tool that can potentially help you accomplish your goals. To start the conversation, try asking some bigger-picture questions that center around goals and values:

• What kind of life do we want to build with this tool?
• What can we do—and not do—with this tool?
• What do we want to accomplish, and why?
• What are our priorities? Buying a house? Paying for a child's education? Retiring early?

These family conversations about what money can be used for—such as travel plans or envisioning your ideal retirement—tend to be more pleasant and constructive than going straight to the numbers, as they're grounded in shared values and history.

While understanding the tax impact of inheriting an IRA matters, it's not the best place to start the discussion.

Step 2: Steer Clear of Family Conflict

There's the potential for conflict in every family, and money—especially a significant amount of it—can heighten existing tensions. In every family, there are different dynamics and personal histories that cause people to feel they deserve a certain slice of the inheritance pie.

Some people are better than others at making or saving money. What do you do when one sibling is financially successful and the other is not? Expenses may vary, too. Maybe the oldest son has three kids and is going to need more set aside than a sibling with fewer financial obligations—and that can be a sensitive topic.

The only way to get around hurt feelings is to be open and honest. Almost every parent I talk to wants to give evenly to their kids, and for the most part, they're able to—but how they make it happen can vary from child to child, depending on needs and circumstances.

Maybe one child needs help with college, while another needs a down payment for a house. One might receive cash, one receives stock, one receives something set aside in a trust for the future—there can be all sorts of arrangements. That's where a financial advisor can help by walking the family through a variety of options based on their specific situation.

Have the Conversation Before It Becomes Urgent

It's important to plant these seeds early and give heirs time to process. In my experience, family conflicts are more likely to surface when people learn they're going to receive a significant amount of money and feel pressured to figure out what to do with it immediately. People can get anxious or defensive when they're under that kind of pressure.

A financial advisor can serve as a neutral facilitator in these conversations—someone who can present options, help clarify each person's goals, and keep the discussion focused on practical outcomes rather than personal grievances. When an advisor is involved early, the conversation tends to be more structured and less emotionally charged.

The more a family is able to communicate, educate, and clarify the wishes and goals of everyone involved over time, the higher the probability of keeping everybody relatively satisfied with the outcome.

Step 3: Apply Strategies for Balancing the Complexity of Inheritance

Breaking down inheritance conversations into manageable pieces is a strategy we use all the time. Often, people try to solve the whole situation in their head on the fly. An advisor can help by simplifying things down to the basic components.

You can think of it this way: there are three places where the money can go—your kids, charity, or the government. You can mix those up in different amounts. Most people favor their kids, but some people favor charity. I haven't met one yet that favored the government!

Sometimes well-intentioned charitable giving can serve a dual purpose—helping build a long-term giving strategy while also potentially reducing tax burdens that might otherwise affect your other beneficiaries.

Balance What You Leave Behind with What You Need for Yourself

One of the first questions I work through with clients is how to balance their legacy goals with their own retirement and lifestyle needs. It's natural to want to leave as much as possible for your heirs, but that has to be weighed against what you'll need for potentially 30 or more years of retirement. Healthcare costs, long-term care, inflation, and lifestyle preferences all factor into the picture.

At EP Wealth, we use financial planning software to build long-term cash flow projections that can model both sides of this equation—what your retirement looks like under different spending scenarios and what's realistic to set aside for heirs at each stage. When clients can see those projections mapped out over decades, it often brings clarity to decisions that otherwise feel overwhelming.

In some cases, clients discover they may have more flexibility than they expected. In others, the projections reveal that adjustments to their inheritance plans could help strengthen their own financial position in later years.

This kind of analysis can be an important starting point before getting into the specifics of trusts, gifting, and other tools—because the right inheritance strategy depends in part on how much you can comfortably direct toward that goal.

Step 4: Watch Out for Sudden Wealth Syndrome

As you plan your inheritance, here's a figure worth considering: a commonly cited estimate suggests that roughly 70% of wealthy families lose their wealth by the next generation, with around 90% losing it the generation after that.

Why does this tend to happen? A parent passes away, and heirs find themselves with more money than they've ever had before. Do they know how to invest? Do they know how to make it last? Are they going to make the most rational decisions while they're also grieving?

To work toward a more sustainable outcome, preparation can make a meaningful difference. Having wealth and enjoying life isn't inherently problematic. The suddenness of it all is what often throws people into a tailspin.

Money drops into your lap, and all of a sudden, you're able to change your lifestyle or experience life as you never have before. We try to counter the temptation to overspend with education, a goals-based financial plan, and ongoing communication with the rest of the family.

When you receive a large sum of money, it can be like having a compass without a map. Maybe you have a general direction you'd like to go, but you don't want to take a costly wrong turn along the way. Having a financial plan in place can be the map that helps you get where you want to go.

Start Preparing Heirs Before the Inheritance Arrives

Some of the most effective preparation can happens well before any wealth changes hands. Families who involve the next generation in financial conversations gradually—whether that's including them in discussions about charitable giving, walking them through the basics of how the family's investments are managed, or giving them small financial responsibilities when they’re young—may find that their heirs feel more capable and less overwhelmed when the time comes.

This doesn't have to be formal or complicated. It might be as simple as inviting adult children to sit in on a meeting with the family's financial advisor, or involving them in decisions about a donor-advised fund. These experiences can help build both financial literacy and a sense of responsibility over time.

Preparing Heirs for an Inheritance

1. Start Family Conversations Early 
2. Involve Heirs in Financial Decisions Gradually 
3. Build Financial Literacy Over Time 
4. Create a Goals-Based Financial Plan
5. Review and Adjust as Circumstances Change

Step 5: Invest in the Development of Your Financial Skill Sets

Preserving wealth can require a much different skill set than building wealth.

In my experience, the people who have created significant wealth in their lives are generally risk-takers—those who are fearless, willing to make big swings and snap decisions. That's generally not the same skill set—the thoughtful, slower decision-making and consensus-building—that it takes to preserve wealth over multiple generations.

You're not going to learn all of this in a one-hour meeting with a financial advisor. Instead, it evolves out of a lifetime pursuit of learning about money and investing:

• Balancing risk and return
• Compound interest and investment time horizons
• Diversification and asset allocation
• Tax-aware withdrawal and spending strategies

Once you have money in the bank, many of these more abstract concepts start to feel much more real to you. That's when you can start applying the principles that you're learning.

Being open, talking to advisors, and learning as much as possible about the dynamics of building and maintaining wealth is one of the most constructive ways families can approach the intergenerational wealth challenges we so often see.

At EP Wealth, we work with clients across generations and can support these conversations as part of a broader financial planning relationship. For some families, that means meeting with adult children to walk through the basics of how their parents' wealth is managed. For others, it means helping heirs develop their own financial plans once they've received an inheritance.

Step 6: Consider Trust Structures and Estate Planning Tools

I like to talk with my clients about trusts, and often they think of them as a very old-school, Rockefeller-or-Vanderbilt-dynasty kind of thing—when in fact, trusts are a major part of modern-day estate planning and wealth management. There are a range of structures that might be available depending on your goals, your family's circumstances, and the complexity of your estate.

Revocable Living Trusts

A revocable living trust is one of the most common tools in estate planning. It allows you to maintain control of your assets during your lifetime while specifying how those assets should be distributed after you pass. One of the key advantages is that assets held in a properly funded trust can typically bypass the probate process, which may save your heirs time, cost, and complexity.

It's worth noting that creating a trust is only part of the process. The trust also needs to be funded, meaning that your accounts and property need to be retitled into the trust's name. A trust that hasn't been funded may not accomplish what it was designed to do.

Irrevocable Trusts

Irrevocable trusts involve giving up control of assets, but they can offer potential benefits around estate tax reduction and asset protection. These structures may be appropriate in situations where a client wants to move appreciation out of their estate or provide for heirs in a more structured way. Because they can't easily be changed once established, they require careful planning and legal guidance.

Donor-Advised Funds

If your family wants to support specific causes or organizations—like a university, a community foundation, or a particular charity—a donor-advised fund (DAF) can be an efficient vehicle for doing so. A DAF allows you to make a charitable contribution, potentially receive a tax deduction in the year of the gift, and then direct grants to charities of your choice over time. Some families also involve the next generation in grant-making decisions, which can be a meaningful way to build shared philanthropic values.

Gifting Strategies

Lifetime gifting—whether through direct gifts, custodial accounts like UTMAs, or contributions to irrevocable trusts—can provide financial support to children or grandchildren while you're still alive. Depending on the approach, gifting may also help reduce the size of your taxable estate over time. There are annual and lifetime limits to be aware of, and the right approach depends on your broader financial picture, so working with an advisor and an estate planning attorney is important.

Keep Your Documents Current

Whichever tools you use, reviewing and updating your estate documents regularly is one of the most important steps in the process. Life changes—marriages, divorces, births, deaths, changes in financial circumstances—can all affect whether your current plan still reflects your intentions. At EP Wealth, we work alongside estate planning attorneys to help clients keep their plans aligned with their current goals and family structure.

Step 7: Pass Along Values, Not Just Wealth

Remember, you're not just passing along your wealth. It's also important to pass along the values and the stories that went along with creating that wealth in the first place.

Maybe Grandpa invested in the railroads when he was in his thirties, worked hard, and bought dividend-paying stocks that grew into a substantial nest egg. Weaving these stories together can be powerful for someone who's inheriting significant wealth—to see themselves as part of a bigger picture within the family line.

Inheritance isn't like winning the lottery jackpot: it's about taking ownership over your piece of the larger family story and creating a continuing legacy for your children or future heirs to build on as well.

When values, stories, and financial preparation come together, the next generation may be better positioned to steward the family's wealth thoughtfully—and to add their own chapter to that story.

If you're thinking about how to prepare your family for an inheritance, or if you'd like to revisit a plan that's already in place, reach out to an advisor at EP Wealth to help guide the conversation and connect you with the right resources for your situation.

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